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Rick Rule Explains How to Survive In This Market

on 5/19/2014

Many junior resource investors look at the most popular stocks, wait for them to rise, and then buy them. Then, when those stocks plummet – as they often do in the volatile world of junior resources – they sell them and take a heavy loss.

Many junior resource investors do that in spite of the well know adage “buy low, sell high.” Many junior resource investors do… but not Rick Rule.

Rick Rule has been a well-received keynote speaker at many events and his track record speaks for itself. We met up with Mr. Rule at the Metals and Minerals Investment Conference in New York City on May 12 and 13.

We started by asking Mr. Rule what changed since the last time we spoke with him. “The market changed a little from the last time we talked,” he said. “The last time we talked, I said it was an absolute bottom. We are up off that bottom but we’re still cheap. The truth is, in terms of these junior equities markets, there’s probably an 18 month recovery with higher highs and higher lows, but a sausage-shaped bottom. Not a recovery that is fast enough to satisfy this crowd, which would prefer not to have to hold the stock over a long weekend.”

While this scenario would drive many investors away, Mr. Rule is adamant that this is actually the best time to be an investor: “It’s a perfect set of circumstances. I try to say in the general session that a market that is off by 75% is precisely 75% cheaper than it was in a bull market when everybody liked it. What you know about a 75% market is: In order for it to get back to its normative levels, it has to go up by 400% and there is something about that that people think is wrong. I think it’s very interesting.”

Explaining further, Mr. Rule said: “At 61 years of age, I’ve learned that bear markets are the authors of bull markets. We’ve been through an epic bear market and my suspicion is that we’re headed – albeit slowly – into an epic bull market.”

So what does Mr. Rule advise investors do? His very first piece of advice is: “Know thyself. Many people can’t stand the volatility associated with metals markets and most people are not, by nature, contrarian. If you’re not a contrarian in the resource market, you’re going to be a victim. So know yourself. If you’re willing to be contrarian, if you’re willing to speculate, if you are willing to assess risk, and if you can afford it, there is no market in the world like junior resource stocks. For junior resource holders, my message is always the same: You suffer through the pain, why not hang around for the gain?”

Next, we talked about what sectors of the resource market Mr. Rule was interested in. “I really like platinum and palladium,” he said. “I like all precious metals but gold investing is, in fact, faith-based investing. And being, at best, agnostic, I’ve always had problems with that. Platinum and palladium respond to normal supply and demand fundamentals. Oil and gas analysts can understand platinum and palladium.”

Then he mentioned another: “I like the uranium business because we produce uranium for more than we sell it for. Which means that the industry is in liquidation. So uranium companies have only two choices: Either the price goes up or the lights go out. Those are the two choices.”

And the third sector may surprise investors because it’s not a traditional resource but it’s a precious resource nonetheless: “I love the water business. Water has been treated as a free good in the West and that party is coming to a halt. Nobody is prepared for what is going to happen to water prices. If you own water, you’re going to make a fortune. Although ten years from now, the state will steal your fortune from you so you need to sell it before the state steals it.”

As usual, Mr. Rule ends with a mix of insight and advice for investors who realize that they need to change their thinking if they want to change the results of their investing: “The nature of my business is that we are in a bear market and bear markets are sales. I’ve learned from having been in this business for 35 years that buying goods on sale has a wonderful, wonderful outcome after they are no longer on sale. It’s weird that, although everybody understands the truism to buy low and sell high, nobody is willing to buy low and everybody is too greedy to sell high. You can put yourself on the backside of those two trades, this becomes a very good business… The lesson is always the same: In resources you are a contrarian or you are a victim. This is the opportunity to buy low in anticipation to sell high.”

Many investors will read this, agree wholeheartedly with Mr. Rule, but will continue to invest reactively as they always have. But a few investors just might change how they invest, adopt Mr. Rule’s contrarian approach, and will notice a profound difference.

REFERENCES

 

Rick Rule: http://sprottglobal.com/our-team/rick-rule/

Metals and Minerals Conference site: http://www.metalsandmineralsevents.com

 



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